A year on, jury out on economic harm of Estonia’s row with Russia

A picture of the Bronze Soldier monument is seen on a balloon in Tallinn

International Herald Tribune
April 26, 2008

TALLINN (AFP) — A year after the Estonian capital Tallinn was trashed in demonstrations sparked by the relocation of a Soviet war memorial, the jury is still out on whether Russia has used backdoor trade sanctions to punish its Soviet-era vassal.

One recent official study said the tiny Baltic — and European Union — state lost an estimated 450 million euros (700 million dollars), nearly 3.0 percent of GDP, in business with Russia in the wake of the “Bronze Soldier” row.

The dip, however, was not reflected in Estonia’s 2007 trade balance with Russia. To the contrary, its trade deficit decreased 68.4 percent.

The worst street violence in independent Estonia erupted on April 26, 2007 as protests by the country’s sizable Russian minority against the shifting of a monument to Soviet troops killed in World War II spiralled into two nights of riots and looting.

For many Estonians the statue was a symbol of reviled Soviet domination, but the move was seen as an affront by many Russians.

Estonian officials allege that Moscow piloted the riots and a later cyber war that temporarily shut down Estonian government and business websites. Russia has flatly denied any involvement.

Many Estonians believe Moscow further retaliated by slapping unofficial sanctions on its neighbour, which has just 1.3 million people.

The transit sector catering to Russian coal and oil exports was been hardest hit.

“The transit of Russian goods via Estonian railways started to decrease sharply after last April’s events and, altogether, railway transit fell last year by 26 percent compared to 2006,” Erki Lohmuste, an Estonian finance ministry macro-economist, told AFP.

“This in turn affected the work of Estonian ports — transit of Russian goods there decreased by 18 percent last year,” he said.

“Since May last year Russia also accelerated a programme, launched several years ago, to use more of its own ports for transit of Russian goods,” Lohmuste added.

But Estonian Prime Minister Andrus Ansip, who spearheaded the disputed relocation of the memorial, has insisted estimates of the economic damage tied directly to the row are inflated.

According to Ansip, the downturn in transit trade through Estonia is rooted in a long-term plan hatched by the Kremlin.

“Outgoing Russian President Vladimir Putin already said several years ago that transit states like Estonia are ‘parasites’ who live at the ‘expense of Russia’ and Russia should not ‘feed them’ — and he really meant it, long ago launching a programme to redirect transit,” Ansip told AFP.

“Russia has for years invested huge sums in (its domestic) ports and that’s the reason why transit of its goods via Estonia has decreased,” Ansip said.

“But the impact on the Estonian economy is much smaller than some critics say,” he claimed.

While Estonian railways last year had to fire 200 workers due to slumping trade, Ansip pointed out that in some sectors trade between Estonia and Russia flourished.

“For example, timber imports from Russia increased last year by 24 percent. And in total from May 2007 until January 2008 export of Estonian goods to Russia increased by 9.6 percent compared to the same period a year before,” Ansip said.

“In general the impact of last April’s events on Estonia’s economy were modest, because it is rather weakly linked to the Russian market,” said Lohmuste.

“Most studies indicate that the impact was a loss of around 0.5-1.0 percent of gross domestic product, and not more,” he said.

Ansip also trumpeted an overall 15-percent rise in exports between January 2007-2008, saying “that’s been the best news in the Estonian economy after very bad export figures in last August and September.”

“But our optimism is somehow also clouded, knowing that the economy is also cooling in our main export markets and that might decrease demand for our goods,” he said.

Estonia’s principal trade partners are fellow members of the EU, and with the bloc in the doldrums Estonia’s central bank has more than halved its 2008 growth forecast to 2.0 percent.

In 2007 Estonia chalked up 7.1 percent GDP growth after a national record of 11.2 percent in 2006, the second-best rate in the entire EU.

After a five-decade occupation, Moscow finally lost its grip on Estonia and fellow Baltic republics Latvia and Lithuania as the Soviet Union collapsed in 1991. All three joined the EU in 2004.